Home » all category posts » Economics » Economics: USA

Lowenstein Channels Numerian


Looks like Roger Lowenstein is channeling Numerian. Here's what Numerian wrote:

This is just a beautiful example of how the morality that applies to the corporate world is so different than the morality expected of you as a homeowner. You "default" on your home mortgage and go into "foreclosure" just before you lose the property to the bank. Morgan Stanley is going to "relinquish" its assets to the bank. It sounds so polite and gentlemanly of Morgan Stanley to do this, like they are volunteering to make this orderly transfer. Alyson Barnes, a spokesperson for Morgan Stanley, said “This isn’t a default or foreclosure situation, we are going to give them the properties to get out of the loan obligation.” The hell it isn't a default or foreclosure. If you were to do this with your home, you would be classified by the real estate industry as entering into a "strategic default." This is exactly what Morgan Stanley is doing, and everything about the way this deal is being reported is intended to prevent you from doing the same thing.

And here's Lowenstein:

Businesses — in particular Wall Street banks — make such calculations routinely. Morgan Stanley recently decided to stop making payments on five San Francisco office buildings. A Morgan Stanley fund purchased the buildings at the height of the boom, and their value has plunged. Nobody has said Morgan Stanley is immoral — perhaps because no one assumed it was moral to begin with. But the average American, as if sprung from some Franklinesque mythology, is supposed to honor his debts, or so says the mortgage industry as well as government officials. Former Treasury Secretary Henry M. Paulson Jr. declared that “any homeowner who can afford his mortgage payment but chooses to walk away from an underwater property is simply a speculator — and one who is not honoring his obligation.” (Paulson presumably was not so censorious of speculation during his 32-year career at Goldman Sachs.)

Read the rest, here.


Sean Paul Kelley January 8, 2010 - 11:02am
Sean Paul Kelley's diary | printer friendly version | digg
( categories: Economics: USA | The Markets )

I'm happy to be several months ahead of the MSM

Lowenstein adds an interesting twist to the arguments in favor of strategic defaults. If millions of Americans seriously threatened to default on their mortgage because it was underwater - even if they could continue paying on the mortgage - the financial giants would get serious about restructuring principal payments. So far the courts have not been allowed to order such restructurings, and Washington's efforts to push the banks in this direction have been utterly futile.

Another argument I hadn't thought of earlier is this. Historically the banks have brandished the threat of severe, long lasting damage to your credit score if you default on your mortgage. Evidence shows this threat is not as serious as it is made to appear. The threat would be meaningless, however, if again millions of Americans chose strategic default. The FICO system would be useless, and the banks would have to adjust it if they wanted all these people back into the credit system again. After all, they do have rip-off debit cards to sell to people.

There is one group of Americans who take a high moral stance towards debt payments, and that is evangelicals when it comes to tithing. Anecdotal evidence across the country shows that evangelicals who tithe will continue to give 10% of their disposable income before any other expense, even if it means defaulting on their mortgage. Their tithe is a compact with God, in their view, and He will take care of them come hell or high water (so to speak). Mortgage experts have been saying for several years that evangelical tithing is one of the contributors to the housing bust.

Too bad some of these preachers aren't as moral about where the tithe money goes as their congregation is about paying it. Not a few reverends live like millionaires, with this tax free money, and like many parts of our economy, no one around to publicly audit how this money is spent (the better ones do give voluntary accounting of the tithe proceeds, recognizing that their parishioners expect it is all going to charity).

Numerian January 8, 2010 - 11:47am
login to post comments
Numerian, what do you think

of Lowestein's books, i.e. Buffett bio, When Genius Failed and Origins of the Crash? I felt 'Genius' was probably his best effort. Just curious about your opinion.

"Sí che dal fatto il dir non sia diverso."

-Dante

Sean Paul Kelley January 8, 2010 - 11:52am
login to post comments
I'm most familiar with the Buffett book

I read that about five years ago and found it to be not a business book at all, but a celebrity biography. It reminded me of the work that Bob Woodward does, except Woodward manages usually to get some excellent access to his subject and other insiders, so his revelations are important.

I thumbed through Origins of the Crash and didn't pursue it because it seemed everything I needed to know from the book was already in the reviews.

I appreciate what Lowenstein is trying to do, again in the Woodward vein. He is telling a story and keeping the reader interested in the sequence of events and the personalities involved. Woodward has always said he doesn't do analysis, and I think the format of these sorts of books prevents decent analysis. Lowenstein at least commands a broad readership and is the best at this financial genre. My own preference would be for something more market and economics oriented, but then, you have to wonder who would read it.

Numerian January 8, 2010 - 2:57pm
login to post comments
Interesting, Numerian, the first book of his

I read was "When Genius Failed" and I found it to be excellent. I thought the narrative pacing coupled with analysis was well done. I think part of the reason for that was that I was at a point in my career, having lived through the LTCM crisis and the Russian default and the Asian Financial crisis, where my skepticism about the whole, market triumphalism was beginning to kick in. So, I found Lowenstein a nice tonic to all the hoople. Then again, at that time I was also reading Barton Biggs and Byron Wein and Stephen Roach on a daily basis. There skepticism and experience was pivotal to me as well.

Anyway, thanks for the input.

"Sí che dal fatto il dir non sia diverso."

-Dante

Sean Paul Kelley January 8, 2010 - 3:51pm
login to post comments
Wow!

Evangelicals who tithe are idiots.

creativelcro January 8, 2010 - 12:30pm
login to post comments
Perhaps the bankers should

sue the churches for their divine financial impropriety.

http://mauberly.blogspot.com/

mauberly January 8, 2010 - 7:48pm
login to post comments
Hospitals

There are reports of people with poor credit denied hospital care. I cannot supply cites.

"Turning Japanese I think I'm Turning Japanese I really think so da-da-da det det det det" - The Vapors

Tonsure Wimple January 9, 2010 - 6:01am
login to post comments
from the looks of things...

...the credit rating system is going to be worthless in the near future whether the issue is forced by strategic defaults or happens organically. I'd think that CC defaults have to rise over the next few years, and frankly, those seem like a better place to strategically default for many Americans.

Lex January 9, 2010 - 12:33pm
login to post comments
CV, see

Elmer Gantry for the best take down, still in existence, of American fundamentalism.

"Sí che dal fatto il dir non sia diverso."

-Dante

Sean Paul Kelley January 8, 2010 - 12:58pm
login to post comments

Comment viewing options

Select your preferred way to display the comments and click "Save settings" to activate your changes.